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Bankers reiterate opposition to collective debt rescheduling - merchants press case over $3bn in loans (Daily Star)

Bankers reiterate opposition to collective debt rescheduling - merchants press case over $3bn in loans
‘Bad loans only make up 5 percent of the total to the trade and commercial sector’

The Association of Banks in Lebanon repeated Wednesday its refusal to bow to merchants demanding collective debt rescheduling for up to $3 billion of their outstanding loans.

“The association is ready to reschedule the debt of those who are in trouble,” said the head of the Association of Banks in Lebanon, Joseph Torbey, at news conference. “But we absolutely refuse collective debt rescheduling, which would make Lebanon and some of its sectors look as if they are on the verge of bankruptcy.”

He added some merchants want banks to write off accumulated interest payments and this could affect Lebanon’s creditworthiness and cast doubts on the banks’ financial standing.

Merchants asked the Banking Association to reschedule some of their outstanding debts, which they say amount to $3 billion, saying they face bankruptcy. But the secretary-general of the Association of Banks, Makram Sader, said the amount is closer to LL1 trillion ($660 million). “These bad loans only make up 5 percent of the total loans to the trade and commercial sector,” said Sader.

Torbey said the Association had agreed to study cases of bad loans one by one, and it was up to the merchants to accept or reject the agreement reached with the union. He added the total rescheduling of bad loans usually took place at times of economic difficulty, as a result of war, government default on its debt or devaluation of the currency, none of which Lebanon is currently facing. He argued any such move to pressure the banks to reschedule the loans of unworthy debtors could prompt Lebanese banks to stop lending to the private sector altogether. “We oppose this movement (for collective debt relief) and we call on our fellow heads of economic bodies to fight it too,” said Torbey. “In the end, they will be the No. 1 losers as such a process could lead to a total halt of new loans to the sector.”

However, private sector representatives called Wednesday for an all-out debt rescheduling for the trade and commercial sector and a reduction of banks’ interest rates for new loans.

Head of the Lebanese Industrialists Association Fadi Abboud said debt rescheduling for troubled firms was part of a bigger framework for cutting lending costs. “The Lebanese Industrialists Association regards debt rescheduling as one of the basic problems plaguing Lebanon’s business sector,” said Abboud. “But resolving this problem without attacking its causes will not provide a long-term remedy.”

Abboud argued “Paris II” led to a drop in interest rates on T-bills and bank deposits, but it has not been matched by a similar drop in lending rates. “It is illogical to maintain the current wide margin between the rates on debit and credit accounts while waiting for market forces to remedy the situation,” said Abboud. “This is in fact one of the reasons for the financial troubles of some firms.”

Economic bodies in the North issued a joint statement in support of their counterparts in Beirut. “Banks should be partners to producers,” they said in a statement.

Beirut 26-05-2003
Dania Saadi
The Daily Star

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